Hitting Critical Mass

U-Gas shows the possibilities of a small-scale foodservice commissary.

By increasing efficiencies and bringing on new business, U-Gas is showing signs that even a modest-size operator can make the commissary equation work.

Ramping Up

A small retailer may have big ambitions for its foodservice program, but certain key fundamentals must fall into place to make a commissary worth it [CSP—Oct. ’12, p. 207]. Just ask Jared Scheeler, director of retail operations for Bobby & Steve’s Auto World, an eight-store chain based in Eden Prairie, Minn. Five of the retailer’s sites have kitchens for creating its proprietary made-to-order foodservice offer. Until recently, the chain had considered installing a commissary for breakfast and deli sandwiches at one of its sites.

Bobby & Steve’s eyed several factors in favor of a commissary, such as the short distance between stores—at most 30 miles—and the fact that each site was making the same product each day.

“If stores are not going through a high enough volume, it’s really inefficient to make it fresh every day,” says Scheeler. “It’s labor-intensive, and you’re carrying a high amount of inventory in the store to make products.” The cooking and prep space in the stores is currently 650 to 700 square feet, while cooler and freezer storage command another 600 square feet.

The company was also attracted by the projected revenue and margin increase, and the potential of being more efficient with less waste. Even the cost to build a commissary was not prohibitive. Then came the other major financial consideration: distribution. Outfitting a vehicle with refrigeration and hiring a part-time driver for only four hours a day to deliver to eight stores just did not make financial sense.

“With all of those factors combined, we maybe were four stores short,” says Scheeler, who points out that until the chain reaches the magic store count, it will work on building more efficiency and productivity into the program.

An operator with fewer than 10 stores would need to make nearly $50,000 per site in foodservice sales and have close stores with a very tight, profitable distribution network to make a commissary worthwhile, says Holand of Food Sense. “Once you get to 20 to 25 stores in a 100-mile radius, you can support a commissary, if you’re doing some reasonable volumes,” she says.

U-Gas’ 19 sites are no more than 40 miles apart from each other; a 20th is scheduled to open in mid-December. One of its sites is out of state just across the border. The commissary also provides food to two Dirt Cheap liquor and tobacco outlets that U-Gas owns; the company decided not to serve additional Dirt Cheap stores because of their distance.

Most product is finished at the commissary, which also creates a few pass-through items, such as pizza and calzones, that are heated up at the stores.

“There’s not a product we can’t make,” says Springer. The chain is in the R&D phase of a fried-chicken program and take-home meals, examining everything from labor and cost studies to potential packaging.

“You don’t wake up, make a sandwich and roll,” says Springer. “We can make anything, but we have to do a lot of research.”

Other challenges include managing employees, building efficiencies, controlling costs, sanitizing and cleaning the facility, and working with an on-site USDA agent, who rotates out every three years. While labor represents the biggest portion, or 60%, of operational costs, U-Gas has made some progress. For example, it is starting to work with new automated labeling machine, coinciding with the introduction of tamper-evident packaging.

Plunge in oil prices sets the stage for record margins and boost in in-store sales. Also In This Issue: Profitability skyrockets for top performers! Other channels seek to redefine convenience! The economy enters a new stage. The growing health-and-wellness trend. Fuel demand; oil's slide; multicultural momentum; and data, data, data!

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